Essays on insurance design and the demand for medical care
Ackley, Calvin A.
MetadataShow full item record
This dissertation is composed of three essays that study the interplay of consumers, insurers, and providers in the health care market. These chapters address the role of insurance plan design in shaping the incentives of market participants, and how this translates into economic outcomes. The results presented here shed light on how consumers respond to health care prices, and how this factors into equilibrium pricing and welfare. The first essay studies the impact of tiered cost sharing in health plans. Consumers in tiered plans face variation in out-of-pocket prices across provider tiers, creating an incentive to use low-cost facilities. I use detailed administrative claims data from New Hampshire, a state where these plans have become increasingly common, to study both the demand-side and supply-side effects. I find strong evidence that the tiered programs lead to a reduction in per-episode spending on an array of lab, endoscopic, and arthroscopic medical procedures. Expenditure reductions are driven in part by an increase in the use of low-cost providers, and in part by a decrease in prices overall. The second essay develops a structural model of the health care market to explore the equilibrium implications of tiered cost sharing. I first employ a discrete choice model to estimate the demand for providers, exploiting variation in out-of-pocket costs across providers, plans, and time. I next estimate a model of bilateral bargaining between insurers and providers, which incorporates variation in benefit design across plans. Counterfactual simulations imply that tiered plans are more effective than other popular plans in steering consumers toward low-cost facilities. The third essay provides new estimates of the price elasticity of demand on the intensive margin for a suite of common medical services. I develop an instrumental variable strategy that exploits consumer inertia and average plan characteristics to account for endogenous out-of-pocket prices. I employ this method in both linear and nonlinear settings to ascertain the extent to which consumers respond to variation in out-of-pocket prices when choosing a health care provider. I find that elasticities on this margin are relatively modest, and exhibit heterogeneity across services.